Quick math problem: while camping, you decide to start a fire. You have five logs. Three are needed to start the fire. Each log will burn for roughly one hour. How long will your fire burn before more logs are needed?
The answer is your burn rate. It’s a simple measure of how fast you consume available resources. And it greatly affects your professional and personal future.
In a business context, burn rate refers to negative cash flow that is usually experienced as part of a startup enterprise. Whether you plan on making something, provide a service or some combination of the two, you will need money to get up and running. And if you exhaust your cash reserves before turning a profit, you’ll need to obtain additional funding (take a loan, sell equity, offer stock, etc.) or shutdown operations. Thus, your firm’s burn rate determines how long you can survive without making a profit.
Businesses with excessively high burn rates require a lot of cash, which is problematic for entrepreneurs, worrisome for investors and potentially terminal for employees. Out of control burn rates plagued the first ten years of my career as the internet boomed and e-commerce was getting figured out. It culminated with my working for a company attempting a transition from printed catalog driven sales to online/website driven sales. At the time many believed the Internet would universally increase gross revenues; a rising tide to lift all boats. A feverish race to collect customers led to wide-spread speculative investing. My employer capitalized on the opportunity to artificially inflate the wealth of its VPs and executives.
But when the dot-com bubble burst and more venture capital was nowhere to be found, we began laying off sales and customer service associates with regularity. During my final months serving as “Director of No Sales”, I repeatedly explained the layoffs using the company line: “…necessary restructuring in an effort to lower the corporate burn rate.” Eventually I placed myself on the chopping block, took a small severance and moved on. The company declared bankruptcy shortly thereafter and left its suppliers and creditors with the bill. I was young and relatively inexperienced but would soon come to learn my situation was not unique.
The experience proved to be a pivot point in my career. Faced with little employment prospects, I was fortunate to be offered a job at my brother’s business working as General Manager. Two years later I was accepted in the evening MBA program at the University of Minnesota. With our first child on the way I had no interest in a four or five year endeavor that slowly acquired academic credits. Instead I preferred to get it done as fast as possible and therefore attended classes four nights a week while working full-time. It left little opportunity for much of anything else, especially exercise.
In a health context, burn rate can be thought of as how many calories you consume over a period of time given your baseline metabolism and level of activity. Whether you plan on running a marathon, play some golf or relax in a hammock, you will need some fuel to keep your body operational. And if you burn less than you take in, your body will convert the excess to fat and store for future use. Thus, your body’s burn rate determines how much you can eat without gaining weight. In short, eat more than you burn and you’ll get fat. You don’t have to be nutritionist to have this rudimentary understanding of human health.
Nonetheless an imbalanced burn rate caused me to gain weight during those two years attending night classes. With little to no spare time, lots of stress and anxiety coupled with fast food and late night snacking eventually bloated my midsection. I was older and more educated and soon came to lear my situation was not unique.
I recovered from the dot-com bubble fairly quickly. Shortly after receiving an MBA in Marketing and Corporate Strategy Grainger recruited me to work as a supply chain consultant for its top customers. Unfortunately I wasn’t able to recover from the weight gain. While I’ve lowered my weight significantly multiple times over the years, I’ve failed to maintain whatever gains were made and find myself 70+ pounds heavier than I was two decades ago. I’ll keep working on it. Not because I want to, but because I have to.
So know your burn rate. It significantly affects your long term health—both professional and personal.
